S&P 500, Nasdaq fall 1.5% as chip selloff deepens on AI doubts

The Nasdaq Composite fell 387 points, or 1.5%, to 25,882 as semiconductor stocks tumbled on doubts about AI spending returns. The S&P 500 lost 39 points, or 0.5%, to 7,534, while the Dow Jones Industrial Average slipped 106 points, or 0.2%, to 52,553.

"The rotation in markets has seen money desert chip and AI stocks, and flow to areas where these are either less prominent or non-existent," said Chris Beauchamp, chief market analyst at IG. "This is all healthy market action, but is little comfort to latecomers to the tech rally."

The Philadelphia Semiconductor Index tumbled as Nvidia, Micron Technology and Broadcom all finished sharply lower. SanDisk fell 9.4% to lead declines on the Nasdaq 100, while Seagate Technology and Western Digital each dropped about 7%. The selloff extended a rotation out of technology names that has gathered pace this month, with the Dow and Russell 2000 outperforming the tech-heavy Nasdaq.

Healthcare stocks provided a counterweight. Abbott Laboratories surged 11.8% after reporting second-quarter earnings that beat expectations and raising its full-year adjusted guidance, making it the top performer on the S&P 500. UnitedHealth Group Inc. rose 8.8% after the health insurer delivered stronger-than-expected results and lifted its full-year outlook, becoming the Dow's best performer.

The chip selloff was triggered by a reassessment of AI-related spending after Taiwan Semiconductor Manufacturing Co. reported a 77% increase in second-quarter profit and raised its capital spending forecast, yet saw its shares fall about 5% in premarket trading. The pattern echoed the market's negative reaction to strong results from Dutch chip equipment maker ASML, highlighting investors' increasingly demanding expectations for AI-linked companies.

US retail sales rose 0.2% in June from the prior month, reflecting lower gasoline prices while underlying consumer spending remained resilient. Excluding gas stations, retail sales increased 0.7%, while the control group sales that feed directly into GDP calculations advanced 0.5%. Bill Adams, chief US economist at Fifth Third Commercial Bank, said the softer headline growth was "actually good news" because it reflected falling gas prices rather than weakening demand.

Oil prices held near $80 a barrel for West Texas Intermediate as geopolitical risks in the Middle East escalated. Iran's military said it launched missiles and drones at US military positions in Kuwait, Bahrain and Jordan in retaliation for an earlier US strike, while Tehran instructed Yemen's Houthi movement to prepare to close the Bab el-Mandeb Strait if Washington attacks Iran's power infrastructure.

Investors now turn to Netflix Inc.'s quarterly earnings, due after the closing bell, for the next signal on consumer demand and technology sector health. Jefferies reiterated its Buy rating and $110 price target, while Bank of America maintained its Buy rating and $125 price objective, with both firms viewing the stock's 20% year-to-date decline as a buying opportunity.

This article is for informational purposes only and does not constitute investment advice.